A Contract Primer: Electronic Rights

[Originally published in the magazine Romance Writers Report, December 2010.]

What is Past is Prologue

Electronic rights are a new frontier in publishing, raising substantial legal issues with regard to their precise definition, calculation of royalties, out of print provisions, and legal jurisdiction. This area of law is evolving rapidly; publishers are constantly adjusting their contract language to maximize profit in this growing market segment. Authors, of course, can respond by challenging those new contract terms.

One brief disclaimer: This article does not constitute specific legal advice for your situation. It does not create an attorney-client relationship or any other expectation of confidentiality, nor is it an offer of representation.

What Are Electronic Rights?

Every publishing contract sets forth the rights being granted by the author to her publisher. Although electronic rights are typically included in that grant, they might not be called “electronic rights.”

Typical electronic rights-granting language might include:

“Author grants to Publisher the exclusive right to print, publish, market, distribute, and otherwise exploit the Work in any manner and in any and all media and formats, whether now known or hereafter known or developed” or

“Author grants to Publisher the exclusive right to license the display of the Work in any manner designed to be read, in whole or in part, by any means, method, device or process now known or later developed, including without limitation on-line or off-line electronic displays, mechanical visual recordings or reproductions, microfilm, microfiche, data retrieval and storage systems, computer software systems, and all other forms of copying, recording or transmitting the Author’s words in any manner designed to be read.”

The key language, in either the relatively simple first clause quoted above or the more complicated second one, is any format “now known or hereafter developed.” Those words are designed to give the contract legs – both parties understand that their agreement will last through successive generations of technological development.

Show me the Money!

In order to make a publishing agreement profitable across time and technological innovation, authors should pay particular attention to the royalty percentage they are paid for electronic rights. Most early electronic royalty provisions gave authors the same percentage that they earned on print books (sometimes as low as 4% for mass market paperbacks.)

In recent years, some authors have successfully argued that electronic publishers do not need to purchase raw materials, make physical books, warehouse that inventory, or ship those goods; therefore, publishers should pay higher royalties on electronic copies. Some authors have successfully negotiated for 25% royalties (an emerging industry norm, as of the writing of this article) or even higher.

As always, authors should pay close attention to the language in their royalty clauses. The difference between royalties calculated on the “cover” sales price can be substantially greater than those calculated on the “net” price (after electronic delivery costs, marketing, discounts, etc.) In addition, some publishers include “most favored customer” clauses, stating that they will only pay royalties based on the lowest-priced electronic edition on the market. Higher royalty percentages, of course, exaggerate those payment differences even more.

OOPs!

Typically, contracts provide for rights to revert to authors once their work is out of print. Traditionally, “out of print” has been easy to define – when there are no longer physical copies of the book sitting in a warehouse, or when a publisher is no longer willing to maintain and ship existing copies, then the book is out of print.

Alas, electronic publication, with its lack of physical inventory, makes “out of print” much more complicated to define. Shrewd authors argue for an explicit out of print provision, such as:

“The existence of an electronic edition shall not constitute the Work being in print unless there are total sales of at least three hundred (300) copies per year.

For example, in traditional print publication, an author might surrender the right to publish her book in the English language in the United States and Canada. She might make a separate contract with a separate publisher for publication in Great Britain, and yet a third contract for Australia and New Zealand. Physical books will be created by the various publishers for distribution in those specific markets. Readers can purchase their local-market books, or they can order books from a distant market, relying on booksellers to complete the transaction.

Electronic publication muddies the waters. Some online vendors, such as Amazon, restrict downloads to specific countries. Therefore, an Australian reader will often be locked out of making an electronic purchase of a book from a U.S. electronic vendor. Some e-reader hardware also contains regional “locks”, keeping readers from accessing works purchased in a different territory.

Wary authors will examine the specific territorial language in their contracts, to make certain that the territories are consistent and reasonably defined, even in the world of electronic distribution.

Pick a Court, Any Court

Electronic publication raises another jurisdictional issue: where litigation can take place. Longstanding, complicated legal rules govern where a plaintiff can sue a defendant, based in part on where their business transaction took place. An author could conceivably be drawn into expensive litigation in a very distant state (or even country) based on her sale of electronic books.

For example, Author Anne might mention the living actress English Emily in her book. If Anne states uncomplimentary things about Emily, Emily might sue Anne. In the traditional world of print publication, Emily could not sue Anne in English courts if Anne has not explicitly licensed her books for sale in England. In the “wild, wild West” of electronic publication, however, if electronic copies are downloaded by English readers, Emily might sue Anne in an English court, applying that country’s very strict libel laws.

Contract language is not likely to provide sufficient jurisdictional protection to any author with electronic books to keep her out of all courts under all circumstances. Rather, authors should consider the potential for the application of other country’s laws when they review their entire publishing agreement, making certain that they can truthfully make each representation and warranty enumerated in the contract.

Ultimate Goal: Informed Consent

Not every author will have the negotiation power to obtain the electronic rights restrictions that she desires. Every author, though, can study the terms of her contracts and know precisely which rights she is granting her publisher. That knowledge will ultimately provide power to stabilize a burgeoning writing career.